UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
I.R.S.
Employer
Commission Registrant, State of Incorporation, Identification
File Number Address and Telephone Number Number
---------------- ------------------------------------- ---------------
1-7297 Nicor Inc. 36-2855175
(An Illinois Corporation)
1844 Ferry Road
Naperville, Illinois 60563-9600
(630) 305-9500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Shares of common stock, par value $2.50, outstanding at April 30, 2001, were
45,400,224.
Nicor Inc. Page i
Table of Contents
Part I - Financial Information
Item 1. Financial Statements (Unaudited) ............................... 1
Consolidated Statements of Operations:
Three months ended
March 31, 2001 and 2000 ....................................... 2
Consolidated Statements of Cash Flows:
Three months ended
March 31, 2001 and 2000 ....................................... 3
Consolidated Balance Sheets:
March 31, 2001 and 2000, and
December 31, 2000 ............................................. 4
Notes to the Consolidated Financial Statements ................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..... 14
Part II - Other Information
Item 1. Legal Proceedings .............................................. 14
Item 6. Exhibits and Reports on Form 8-K ............................... 14
Signature ...................................................... 15
Exhibit Index .................................................. 16
Glossary
Degree day.....The extent to which the daily average temperature falls
below 65 degrees Fahrenheit. Normal weather for Nicor Gas'
service territory is about 6,100 degree days.
ICC............Illinois Commerce Commission, the agency that regulates
investor-owned Illinois utilities.
Mcf, Bcf ......Thousand cubic feet, billion cubic feet.
PBR............Performance-based rate, a plan that provides economic
incentives based on performance.
TEU............Twenty-foot equivalent unit, a measure of volume in
containerized shipping equal to one 20-foot-long container.
Nicor Inc. Page 1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following condensed unaudited financial statements of Nicor Inc. have been
prepared by the company pursuant to the rules and regulations of the Securities
and Exchange Commission (SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to SEC rules and regulations. The condensed financial
statements should be read in conjunction with the financial statements and the
notes thereto included in the company's latest Annual Report on Form 10-K.
The information furnished reflects, in the opinion of the company, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair statement of the results for the interim periods presented. Results for the
interim periods presented are not necessarily indicative of the results to be
expected for the full fiscal year due to seasonal and other factors.
Nicor Inc. Page 2
-------------------------------------------------------------------------------
Consolidated Statements of Operations (Unaudited)
(millions, except per share data)
Three months ended
March 31
-------------------
2001 2000
-------- --------
Operating revenues $1,473.7 $ 659.3
-------- --------
Operating expenses
Cost of gas 1,174.6 390.2
Operating and maintenance 101.4 94.3
Depreciation 58.6 56.9
Taxes, other than income taxes 71.1 47.7
-------- --------
1,405.7 589.1
-------- --------
Operating income 68.0 70.2
Other income (expense), net 4.6 2.4
-------- --------
Income before interest on debt and income taxes 72.6 72.6
Interest expense, net of amounts capitalized 14.3 12.3
-------- --------
Income before income taxes 58.3 60.3
Income taxes 19.5 21.5
-------- --------
Net income 38.8 38.8
Dividends on preferred stock .1 .1
-------- --------
Earnings applicable to common stock $ 38.7 $ 38.7
======== ========
Average shares of common stock outstanding
Basic 45.4 46.7
Diluted 45.6 46.8
Earnings per average share of common stock
Basic $ .85 $ .83
Diluted .85 .83
Dividends declared per share of common stock $ .440 $ .415
The accompanying notes are an integral part of these statements.
Nicor Inc. Page 3
-------------------------------------------------------------------------------
Consolidated Statements of Cash Flows (Unaudited)
(millions)
Three months ended
March 31
--------------------
2001 2000
-------- --------
Operating activities
Net income $ 38.8 $ 38.8
Adjustments to reconcile net income to net cash flow
provided from operating activities:
Depreciation 58.6 56.9
Deferred income tax expense 10.8 3.6
Change in assets and liabilities:
Receivables, less allowances (49.6) 83.1
Gas in storage 20.3 10.6
Deferred/accrued gas costs 177.9 26.1
Accounts payable (208.3) (57.6)
Temporary LIFO liquidation 125.7 111.1
Postretirement benefits (8.4) (7.3)
Other 9.7 35.7
-------- --------
Net cash flow provided from operating activities 175.5 301.0
-------- --------
Investing activities
Capital expenditures (27.8) (34.3)
Short-term investments (4.6) (3.1)
Other .8 (1.5)
-------- --------
Net cash flow used for investing activities (31.6) (38.9)
-------- --------
Financing activities
Net proceeds from issuing long-term debt 74.1 49.9
Disbursements to retire long-term debt (50.0) (50.2)
Short-term borrowings (repayments), net (151.0) (246.3)
Dividends paid (19.0) (18.4)
Disbursements to reacquire stock (4.9) (10.0)
Other .1 1.3
-------- --------
Net cash flow used for financing activities (150.7) (273.7)
-------- --------
Net decrease in cash and cash equivalents (6.8) (11.6)
Cash and cash equivalents, beginning of period 55.8 42.5
-------- --------
Cash and cash equivalents, end of period $ 49.0 $ 30.9
======== ========
The accompanying notes are an integral part of these statements.
Nicor Inc. Page 4
-------------------------------------------------------------------------------
Consolidated Balance Sheets (Unaudited)
(millions)
March 31 December 31 March 31
2001 2000 2000
-------- ----------- --------
Assets
Current assets
Cash and cash equivalents $ 49.0 $ 55.8 $ 30.9
Short-term investments, at cost which
approximates market 47.6 43.0 32.8
Receivables, less allowances of $21.7,
$14.5 and $9.2, respectively 709.6 660.0 276.7
Gas in storage 11.5 31.8 20.4
Deferred gas costs - 49.2 -
Deferred income taxes 60.2 57.6 16.5
Other 15.7 17.2 15.5
-------- -------- --------
893.6 914.6 392.8
-------- -------- --------
Property, plant and equipment, at cost
Gas distribution 3,314.5 3,292.8 3,223.4
Shipping 284.4 281.8 287.6
Other 1.9 2.0 2.0
-------- -------- --------
3,600.8 3,576.6 3,513.0
Less accumulated depreciation 1,902.9 1,847.0 1,801.3
-------- -------- --------
1,697.9 1,729.6 1,711.7
-------- -------- --------
Other assets 240.5 241.2 201.4
-------- -------- --------
$2,832.0 $2,885.4 $2,305.9
======== ======== ========
Liabilities and Capitalization
Current liabilities
Long-term obligations due
within one year $ 75.0 $ 125.0 $ 74.2
Short-term borrowings 291.0 442.0 97.9
Accounts payable 398.3 606.6 224.8
Temporary LIFO liquidation 125.7 - 111.1
Accrued gas costs 128.7 - 10.2
Accrued mercury-related costs 61.0 78.0 -
Other 93.1 59.9 63.8
-------- -------- --------
1,172.8 1,311.5 582.0
-------- -------- --------
Deferred credits and other liabilities
Deferred income taxes 300.3 296.6 273.1
Regulatory income tax liability 69.4 70.4 73.8
Unamortized investment tax credits 40.6 41.1 42.3
Other 100.6 104.6 94.3
-------- -------- --------
510.9 512.7 483.5
-------- -------- --------
Capitalization
Long-term debt 421.4 347.1 435.8
Preferred stock 6.3 6.3 6.3
Common equity
Common stock 113.4 113.7 116.5
Retained earnings 608.4 594.2 681.8
Other comprehensive income (1.2) (.1) -
-------- -------- --------
1,148.3 1,061.2 1,240.4
-------- -------- --------
$2,832.0 $2,885.4 $2,305.9
======== ======== ========
The accompanying notes are an integral part of these statements.
Nicor Inc. Page 5
Notes to the Consolidated Financial Statements (Unaudited)
ACCOUNTING POLICIES
Depreciation. Depreciation for the gas distribution segment is calculated
using a straight-line method for the calendar year. For interim periods,
depreciation is allocated based on gas deliveries.
Gas in storage. The gas distribution segment's inventory is carried at cost on a
last-in, first-out (LIFO) method on a calendar-year basis. For interim periods,
the difference between current replacement cost and the LIFO cost for quantities
of gas temporarily withdrawn from storage is recorded in cost of gas and in
current liabilities as a temporary LIFO liquidation.
Reclassifications. Certain reclassifications have been made to conform the
prior years' financial statements to the current year's presentation.
BUSINESS SEGMENT INFORMATION
Financial data by business segment is presented below:
Three months ended
March 31
--------------------
(millions) 2001 2000
-------- --------
Operating revenues
Gas distribution $1,346.5 $ 573.6
Shipping 58.7 59.3
Other energy ventures 93.4 26.5
Corporate and eliminations (24.9) (.1)
-------- --------
$1,473.7 $ 659.3
======== ========
Operating income (loss)
Gas distribution $ 64.6 $ 65.0
Shipping 3.3 5.6
Other energy ventures .9 (.1)
Corporate and eliminations (.8) (.3)
-------- --------
$ 68.0 $ 70.2
======== ========
The 2001 operating revenues of other energy ventures include $24.2 million of
revenues from the sale of natural gas to Nicor Gas.
PERFORMANCE-BASED RATE PLAN
On January 1, 2000, Nicor Gas' performance-based rate (PBR) plan for natural gas
costs went into effect. Under the PBR, Nicor Gas' total gas supply costs are
compared to a market-sensitive benchmark. Savings and losses relative to the
benchmark are shared equally with customers. After 2001, the plan will be
subject to Illinois Commerce Commission (ICC) review.
Results of the company's PBR plan are determined annually. On an interim basis,
the company records an estimate of results attributable to the period. Nicor
recorded $2.5 million of estimated PBR results as operating revenue in the first
quarter of 2001 compared to $1.2 million in the first quarter of 2000.
Nicor Inc. Page 6
Notes to the Consolidated Financial Statements (Unaudited) (continued)
LONG -TERM DEBT
In February 2001, Nicor Gas issued $75 million of First Mortgage Bonds due in
2011 at 6.625%. A portion of the net proceeds replaced $50 million of 5.875%
First Mortgage Bonds due May 1, 2000 that had been temporarily refinanced
through the issuance of unsecured notes. The remainder of the net proceeds
replenished a portion of corporate funds used previously to redeem $50 million
of 8.25% First Mortgage Bonds due in 2024.
COMPREHENSIVE INCOME
At March 31, 2001, Nicor held agreements that hedge the risk-free interest rate
of an anticipated debt issuance of $75 million in August 2001. The change in the
fair market value of the agreements is reported as a component of other
comprehensive income. Comprehensive income (loss) consisted of the following (in
millions):
Three months ended
March 31
---------------------
2001 2000
-------- --------
Net income $ 38.8 $ 38.8
Unrealized loss on cash flow
hedge, net of tax (1.1) -
-------- --------
Comprehensive income $ 37.7 $ 38.8
======== ========
CONTINGENCIES
Mercury program. Nicor Gas has incurred, and expects to continue to incur,
significant costs related to its historical use of mercury in various kinds of
company equipment.
Prior to 1961, gas regulators containing small quantities of mercury were
installed in homes. These gas regulators reduce the pressure of natural gas flow
from the service line to the inside of the home. During the third quarter of
2000, the company learned that in certain instances some mercury was spilled or
left in residences.
As a result, in September 2000, Nicor Gas was named as a defendant in a civil
lawsuit brought by the Illinois Attorney General and the State's Attorneys of
Cook, DuPage and Will Counties seeking, among other things, to compel the
company to inspect and clean up all homes and other sites that may have been
affected by mercury from company equipment. The Circuit Court of Cook County
hearing this action has entered two agreed preliminary injunctions requiring
Nicor Gas, among other things, to conduct inspections and, where necessary, to
clean up mercury, to pay for relocating residents until cleanup is completed,
and to pay for medical screening of potentially affected persons. It is not
possible to determine the likelihood that the plaintiffs will seek and obtain
fines or penalties.
Nicor Gas is also the subject of an Administrative Order, and an amendment
thereto, issued during the third quarter of 2000 by the U.S. Environmental
Protection Agency (EPA) pursuant to Section 106 of the Comprehensive
Environmental Response, Compensation and Liabilities Act. The order requires the
company, among other things, to develop and implement work plans to address
mercury spills at recycling centers where mercury regulators may have been
taken, at company facilities where regulators
Nicor Inc. Page 7
Notes to the Consolidated Financial Statements (Unaudited) (continued)
and mercury may have been temporarily stored and at commercial/industrial sites
where mercury-containing equipment may have been used in metering facilities.
Pursuant to the injunctions and the EPA Administrative Order, Nicor Gas has
completed the work described above for all affected recycling centers,
commercial/industrial sites and company facilities. Potentially affected homes
are being inspected using mercury vapor analyzers. Nicor Gas had called on every
such home by December 31, 2000, although it still has been unable to gain access
to some homes. Approximately 1,050 homes have been found to have traces of
mercury requiring cleanup.
As of March 31, 2001, Nicor Gas had a $61 million current liability for
estimated obligations related to the previously described work and for legal
defense costs. The company charged $148 million to other operating expense in
the third quarter of 2000. Through March 31, 2001 the company had incurred $87
million in costs associated with company's inspection and repair program. The
remaining liability represents management's best estimate of future costs based
on an evaluation of currently available information, and actual costs may vary
from this estimate. The company will continue to reassess its estimated
obligation and will record any necessary adjustment, which could be material to
operating results in the period recorded.
In addition to the matters described above, Nicor Gas has been named a defendant
in several private lawsuits, all in the Circuit Court of Cook County, claiming a
variety of unquantified damages (including bodily injury, property and punitive
damages) allegedly caused by mercury-containing regulators. One of the lawsuits
involves five previous class actions that have been consolidated before a single
judge. At this early stage in the litigation, it is not possible to estimate
what liability, if any, may result to the company from these lawsuits. While no
amount has been recorded for this potential liability, a loss contingency for an
unfavorable outcome of these lawsuits will be accrued if it becomes probable and
can be reasonably estimated. Any such accrual could be material to operating
results in the period in which it is recorded.
The company has certain insurance policies, has notified its insurers, and will
vigorously pursue recovery of mercury-related costs pursuant to its insurance
coverage. In January 2001, the company filed suit in the Circuit Court of Cook
County against certain of its insurance carriers for a declaration that the
company's mercury-related losses are covered, and for the recovery of those
losses. In addition, some of the removals of mercury-containing regulators were
conducted by independent contractors working for the company. In November 2000,
the company filed suit in the Circuit Court of Cook County seeking
indemnification and contribution from these contractors. At this early stage, it
is not possible to estimate the likelihood that costs will be recovered from
insurance carriers or other third parties related to the mercury spills, and
therefore Nicor Gas has not recorded any such amounts as assets in its financial
statements.
Nicor Gas will not seek recovery of the costs associated with these mercury
spills from its customers, and any proceeds from insurance carriers or third
parties will be retained by the company to offset costs incurred.
It is management's opinion, taking into account the above information and
uncertainties, including currently available information concerning the
company's existing and potential obligations, insurance coverage, possible
recoveries from other third parties and available financial resources, that
costs associated with the mercury spills will not have a material adverse effect
on the liquidity or financial position of the company.
Nicor Inc. Page 8
Notes to the Consolidated Financial Statements (Unaudited) (concluded)
Other. The company is involved in legal or administrative proceedings before
various courts and agencies with respect to rates, taxes and other matters.
Current environmental laws may require the cleanup of certain former
manufactured gas plant sites. To date, Nicor Gas has identified more than 40
properties for which it may, in whole or in part, be responsible. The majority
of these properties are not presently owned by the company. Information
regarding preliminary site reviews has been presented to the Illinois EPA, which
oversees the company's investigations and remedial actions. More detailed
investigations and remedial activities have either been completed, are in
progress or are being planned at many of these sites. The results of continued
testing and analysis should determine to what extent additional remediation is
necessary and may provide a basis for estimating any additional future costs
which could be significant. In accordance with ICC authorization, the company
has been recovering these costs from its customers.
In December 1995, Nicor Gas filed suit in the Circuit Court of Cook County
against certain insurance carriers seeking recovery of environmental cleanup
costs of certain former manufactured gas plant sites. Nicor Gas has reached a
settlement with one of the insurance carriers. In February 2000, the court
dismissed the company's case on summary judgment motions by certain defendants.
The company filed an appeal in March 2000. Management cannot predict the outcome
of the lawsuit against the remaining insurance carriers. Any recoveries will be
refunded to the company's customers.
Although unable to determine the outcome of these other contingencies,
management believes that appropriate accruals have been recorded. Final
disposition of these other matters is not expected to have a material impact on
the company's financial condition or results of operations.
Nicor Inc. Page 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the Management's
Discussion and Analysis section of the Nicor 2000 Annual Report on Form 10-K.
SUMMARY
Nicor's first quarter 2001 diluted earnings per common share were $.85 compared
to $.83 in 2000. Net income for the quarter of $38.8 million was the same as the
first quarter of 2000. Improved results from Nicor's other energy ventures and a
favorable change in the effective income tax rate were offset by lower operating
results for the shipping segment. Per share results were favorably affected by
the company's common stock repurchase program.
Operating income. Operating income (loss) by major business segment is presented
below:
Three months ended
March 31
--------------------
(millions) 2001 2000
-------- --------
Gas distribution $ 64.6 $ 65.0
Shipping 3.3 5.6
Other energy ventures .9 (.1)
Corporate and eliminations (.8) (.3)
-------- --------
$ 68.0 $ 70.2
======== ========
The following summarizes operating income comparisons for major business
segments:
o Gas distribution operating income was essentially unchanged for the first
quarter at $64.6 million, compared to $65.0 million a year ago. Improved
margin due largely to colder weather was more than offset by higher operating
and maintenance expenses. The positive contributions from colder weather on
year-to-year operating results were partially offset by the impact of weather
insurance benefits recorded last year.
o Containerized shipping operating income decreased to $3.3 million in the
first quarter from $5.6 million a year ago due to lower volumes shipped and
higher operating costs which more than offset the positive effect of slightly
higher average rates. Lower volumes were primarily attributable to a slow
down in the economy and fewer new construction projects in the Caribbean.
o Operating income from Nicor's other energy ventures increased $1 million to
$.9 million in 2001 due to better operating results from Nicor's wholesale
natural gas marketing and residential energy-related products and services
businesses.
Nonoperating items. Other income increased to $4.6 million from $2.4 million a
year ago. The increase reflects improved results from Nicor's retail energy
marketing joint venture. Increased interest income also contributed to the
improvement in 2001.
Interest expense for the three-month period increased $2.0 million to $14.3
million due to higher average borrowing levels. Increased gas procurement costs
contributed to the higher borrowing levels.
Nicor Inc. Page 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Earnings for the first quarter of 2001 were also favorably impacted by a
reduction in Nicor's effective income tax rate related to the shipping segment.
Deferred taxes will no longer be recorded on undistributed foreign earnings that
will be indefinitely reinvested offshore.
2001 Outlook. Assuming normal weather for the remainder of the year management
currently expects 2001 annual diluted earnings to be in the range of $3.05 to
$3.15 per share and anticipates that second quarter diluted earnings will be in
the range of $.65 to $.75 per share. Although management believes the foregoing
forward-looking statements about its earnings expectations are based on
reasonable assumptions, actual results may vary materially from stated
expectations. Factors that could cause materially different results include, but
are not limited to, natural gas prices, interest rates, borrowing needs, weather
conditions, economic and market conditions, legislative and regulatory actions,
asset sales, PBR plan results, and any future mercury-related charges or
credits.
RESULTS OF OPERATIONS
The following discussion summarizes the major items impacting Nicor's results of
operations.
Operating revenues. Operating revenues by major business segment are presented
below:
Three months ended
March 31
---------------------
(millions) 2001 2000
-------- --------
Gas distribution $1,346.5 $ 573.6
Shipping 58.7 59.3
Other energy ventures 93.4 26.5
Corporate and eliminations (24.9) (.1)
-------- --------
$1,473.7 $ 659.3
======== ========
Gas distribution revenues increased $772.9 million in the first quarter due to
the impact of higher natural gas prices, which are passed directly through to
customers without markup, and colder weather compared to last year. Revenues
generated from Nicor's wholesale natural gas marketing business accounted for
most of the increase in other energy ventures. First quarter 2001 shipping
revenues reflect decreased volumes shipped compared to a year ago due primarily
to substantially fewer construction projects and related volumes in the
Caribbean region offset by slightly higher average rates. The elimination of
natural gas sales from Nicor's wholesale natural gas marketing business to Nicor
Gas is reflected in corporate and eliminations.
Gas distribution margin. Gas distribution margin, defined as operating revenues
less cost of gas and revenue taxes, which are both passed directly through to
customers without markup, increased $6.5 million to $169.7 million in the first
quarter. The increase was primarily due to colder weather compared to last year,
higher customer financing charges, larger contributions from gas supply-related
services and improved results from the performance-based rate (PBR) plan.
Increased company natural gas usage costs attributable to significantly higher
natural gas prices were detrimental to the current year's results. The positive
contributions from colder weather on year-to-year operating results were
partially offset by the impact of weather insurance benefits recorded last year.
Nicor Inc. Page 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Operating and maintenance. Operating and maintenance expenses increased $7.1
million in the first quarter to $101.4 million. The increase reflects higher
expenses in the gas distribution segment due largely to increased bad debt
expense and customer service costs resulting from higher natural gas prices.
Also contributing to the increase were higher operating costs in the shipping
segment relating to increased international shipments, outside charters and
non-recurring legal and claim settlements.
FINANCIAL CONDITION AND LIQUIDITY
Operating cash flows. Net cash flow provided from operating activities decreased
$125.5 million to $175.5 million in the first quarter from $301.0 million in the
prior period. Year-to-year changes in operating cash flow result largely from
fluctuations in working capital items occurring mainly in the gas distribution
segment due to factors such as weather, the price of gas, the timing of
collections from customers and gas purchasing practices. The company generally
relies on short-term financing to meet temporary increases in working capital
needs.
Financing activities. Nicor Inc. and Nicor Gas maintain short-term line of
credit agreements with major domestic and foreign banks. At March 31, 2001,
these agreements, which serve as backup for the issuance of commercial paper,
totaled $472.5 million and the company had $291.0 million of commercial paper
outstanding.
In February 2001, Nicor Gas issued $75 million of First Mortgage Bonds due in
2011 at 6.625%. A portion of the net proceeds replaced $50 million of 5.875%
First Mortgage Bonds due May 1, 2000 that had been temporarily refinanced
through the issuance of unsecured notes. The remainder of the net proceeds
replenished a portion of corporate funds used previously to redeem $50 million
of 8.25% First Mortgage Bonds due in 2024.
Under an existing common stock repurchase program, Nicor purchased and retired
90,000 common shares during the first quarter of 2001 at an aggregate cost of
$3.4 million.
Effective with the dividend paid on May 1, 2001, Nicor's quarterly dividend on
common stock was increased to 44 cents per share. This payment represents an
annual rate of $1.76 per share, which is 6 percent higher than the $1.66 per
share rate established with the May 1, 2000 dividend.
OTHER
Weather hedging. Beginning in 2000, Nicor Gas began hedging the impact of
weather fluctuations. For 2001 Nicor Gas entered into an agreement with a third
party to protect the company's earnings if weather is warmer than 5,700 degree
days, which is about 7% warmer than normal. To partially offset the cost of this
earnings protection, Nicor Gas has also agreed to pay a third party if weather
for 2001 is colder than 6,100 degree days, which is approximately normal. Under
the terms of these agreements the maximum payout or receipt is limited to $17.5
million which is equivalent to approximately 900 degree days.
Market risk. The company is exposed to market risk in the normal course of its
business operations, including the risk of loss arising from adverse changes in
natural gas commodity prices and interest rates. There has been no material
change in the company's exposure to market risk since December 31, 2000.
Nicor Inc. Page 12
------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
GAS DISTRIBUTION STATISTICS
Operating revenues, deliveries, customers and other statistics are presented
below.
Three months ended
March 31
------------------
2001 2000
-------- --------
Operating revenues (millions)
Sales
Residential $ 993.2 $ 387.3
Commercial 188.5 76.0
Industrial 29.9 11.0
-------- --------
1,211.6 474.3
-------- --------
Transportation
Residential 2.9 .9
Commercial 27.8 24.8
Industrial 12.0 11.9
Other 3.9 2.2
-------- --------
46.6 39.8
-------- --------
Other revenues
Revenue taxes 66.5 42.4
Performanced-based rate plan 2.5 1.2
Chicago Hub 2.8 1.3
Weather insurance - 6.9
Other 16.5 7.7
-------- --------
88.3 59.5
-------- --------
$1,346.5 $ 573.6
======== ========
Deliveries (Bcf)
Sales
Residential 102.4 90.2
Commercial 19.3 17.2
Industrial 3.1 2.6
-------- --------
124.8 110.0
-------- --------
Transportation
Residential 3.0 .9
Commercial 40.9 36.7
Industrial 39.7 44.2
-------- --------
83.6 81.8
-------- --------
208.4 191.8
======== ========
Customers at end of period (thousands)
Sales
Residential 1,756.7 1,763.7
Commercial 101.1 111.1
Industrial 6.7 7.5
-------- --------
1,864.5 1,882.3
-------- --------
Transportation
Residential 51.3 16.0
Commercial 67.2 56.0
Industrial 7.3 6.5
-------- --------
125.8 78.5
-------- --------
1,990.3 1,960.8
======== ========
Other statistics
Degree days 3,104 2,585
Colder (warmer) than normal * (2)% (18)%
Average gas cost per Mcf sold $ 8.88 $ 3.32
* The company holds weather derivitive instruments to limit the earnings
impact of weather fluctuations. See Weather hedging on page 11.
Nicor Inc. Page 13
------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (concluded)
SHIPPING STATISTICS
Three months ended
March 31
------------------
2001 2000
-------- --------
TEUs shipped (thousands)
Southbound 31.0 33.2
Northbound 4.6 4.1
Interisland 1.4 1.9
-------- --------
37.0 39.2
======== ========
Other statistics
Revenue per TEU $ 1,583 $ 1,505
Ports served 22 23
Vessels operated 17 17
Nicor Inc. Page 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For disclosures about market risk, see Market Risk on page 11, which is
incorporated herein by reference.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information concerning legal proceedings, see Contingencies beginning on
page 6, which is incorporated herein by reference.
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on page 16 filed herewith.
(b) The company did not file a report on Form 8-K during the first quarter
of 2001.
Nicor Inc. Page 15
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Nicor Inc.
Date May 9, 2001 By /s/ KATHLEEN L. HALLORAN
Kathleen L. Halloran
Executive Vice President
Finance and Administration
Nicor Inc. Page 16
Exhibit Index
Exhibit
Number Description of Document
10.01 2001 Long-Term Incentive Program.
10.02 2001 Incentive Compensation Plan.
Nicor Inc.
Form 10-Q
Exhibit 10.01
2001 LONG-TERM INCENTIVE PROGRAM
At the March 2001 meeting of the Compensation Committee, the Committee approved
the 2001 Long-Term Incentive Program, participants and awards. Shown below is a
full description of the Long-Term Program for 2001.
Summary of 2001 Long-Term Incentive Program
o Combination of Stock Options (SOs) and Performance Units (PUs).
o SOs have a ten-year term.
o PUs are a percentage of base salary at the time of the award and would pay
out based on a combination of total shareholder return and earnings per share
over at least a three-year performance period.
o SOs and PUs are independent of each other.
Description of Stock Options
o Option exercise price set at fair market value on date of grant.
o Options vest after one year and are generally exercisable after three years
(100% in year three).
o Options expire ten years from date of grant.
o Options can be non-qualified stock options (NQSOs) or Incentive Stock Options
(ISOs); Nicor plans to grant NQSOs in 2001.
Description of Performance Units
o Each performance unit equals $1.00 and total units are a percentage of base
salary at the time of the award. As an example, if the participant's base
salary is $150,000 and their long-term target percentage attributable to
Performance Units is 20%, their target award would be $30,000 or 30,000
Performance Units.
o Performance units will pay out in cash, except that a participant in the
Stock Deferral Plan may elect to defer up to 50% of their payout into that
plan. Deferral elections must meet the guidelines and timing of the Stock
Deferral Plan to be effective.
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THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
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How Performance Unit Payouts are Determined
o All performance units pay out at the end of at least three years.
o The payout is based 50% on each of two performance measures. Each half is
modified by a performance multiplier which ranges from 0% to 200%.
o The performance measurers and multipliers are based on the Nicor total
shareholder return (TSR) over the performance period, as compared to the
performance of a utility industry peer group (S&P utility group), and the
three-year earnings per share of the company.
o The following schedules show the proposed performance unit multipliers:
Performance Unit Multiplier Schedules
Payout Earnings Payout
Nicor TSR Multipler Per Share Multipler
90th Percentile or higher 200% 30% 200%
75th Percentile 150% 28% 175%
60th Percentile 100% 26% 150%
50th Percentile 75% 24% 125%
40th Percentile 50% 21% 100%
25th Percentile 25% 18% 75%
Below 25th Percentile 0% 15% 50%
12% 25%
Below 12% 0%
Transferability
With Compensation Committee approval, stock options and performance units may be
transferred, for no consideration, to or for the benefit of the participant's
immediate family as defined in the plan. All terms and conditions remain
applicable after transfer.
Termination Provisions
In the case of death, disability or retirement:
o Nonexercised options and performance units held for more than one year (as of
the date of death, disability or retirement) will be exercisable and/or will
be eligible for payout at the end of the period.
o The full number of performance units will pay out at the end of the
performance cycle, based on the normal per-unit performance/pay out
guidelines.
o Vested options will remain exercisable for ten years after the date of grant.
o The Compensation Committee can override these provisions at its discretion.
In the case of termination of employment for any other reason, there will be no
accelerated vesting of unvested options and performance units. Options held less
than one year and performance units held less than three years are immediately
cancelled. Options held for one year or longer will become exercisable for three
months after the date of termination. The Compensation Committee can override
these provisions at its discretion.
Nicor Human Resources
March 2001
Nicor Inc.
Form 10-Q
Exhibit 10.02
2001
NICOR INCENTIVE COMPENSATION PLAN
A. The 2001 Nicor Incentive Compensation Plan is designed to link participant
incentive compensation to the accomplishment of important objectives--both
financial goals and defined strategic plans. It ties the pay an individual
receives to his performance and that of the company. This plan is intended
to provide a flexible framework for a performance bonus program for Nicor.
B. Purpose
The purpose of this Plan is to provide an annual incentive plan which
supports the longer-term strategic planning process. This is done by linking
pay to the performance of tasks which focus on objectives of strategic
importance.
C. Eligible Group
Officers of Nicor are eligible for participation. Participation should be
limited to those employees in positions which enable them to make
significant contributions to the performance and growth of the company.
D. Components of Plan
Compensation Objective
Bonus Targets
Performance Targets
Goal Setting Guidelines
Program Schedule
Form of Payment
Compensation Objective
Base Salary + Bonus Target = Short-Term Compensation Objective
An individual's short-term compensation objective will be based on salary
plus a bonus, expected to be earned if agreed-upon performance targets are
met. Under certain conditions, short-term compensation above or below
targets may be paid.
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Base salaries will be managed at the appropriate blend of general and
industry average which will be determined annually by survey data. Bonus
targets will be set based on the individual's job responsibilities and
compensation objective, such that total compensation objectives are managed
at the level as determined by the Compensation Committee to remain
competitive.
Bonus Target
The bonus target amount varies according to pay, job responsibilities and
ability to impact the organization. The higher responsibility and impact
levels, the greater the dollars at risk.
Performance Targets
Performance criteria focus on the achievement of agreed-upon and documented
strategic goals. Performance targets may include measures of financial
performance, the ability to meet budget levels and individual or group
performance objectives. An individual's target may include all three types
of goals, weighted by the band level and responsibilities involved. Each
particular performance target will be assigned weighting reflected as a
percentage of compensation objective.
Goal Setting Guidelines
The most important aspect of this Plan will be in establishing effective
goals. In addition to the goals which will be measured by company financial
performance, realistic, operational management goals may be established and
agreed upon by both the participant and his supervisor for company,
division, project or individual performance. As well as being realistic, the
goals should be measurable wherever possible by quantifiable performance
criteria. It is recognized that measurement of some goals will require
subjective assessments on criteria mutually agreed between an individual and
his/her supervisor. Goals must be consistent with the longer-term strategic
plan.
A set of guidelines will be devised by the Nicor Human Resources Department
to aid in this process. These guidelines will provide direction as to goal
formulation and reporting.
Amount of bonus payment for financial/budget related goals can vary above
and below target based upon results achieved. For targets met, bonus amount
will be 100% of target. When targets are exceeded or are not reached, bonus
will be proportionately more or less than the target.
-3-
Project or individual goals which are not quantifiable will be evaluated by
the participant's superior based on performance and will fall into one of
six categories of achievement: unsatisfactory; less than expected, but more
than unsatisfactory; less than expected, but satisfactory given facts and
circumstances; expected; more than expected, but less than outstanding; and
outstanding performance. Accordingly, performance at, below or above
expected performance will result in awards relative to performance.
The Compensation Committee may make appropriate upward or downward
adjustments if, after taking into consideration all of the facts and
circumstances of the performance period, it determines that adjustments are
warranted.
Plan Schedule
The 2001 Nicor Incentive Compensation Plan runs on a calendar year basis,
with the strategic planning cycle and budgeting process the primary link to
performance and bonus targets. Responsibility for determination of financial
results will be with the Accounting Department. A program for review will be
established and individual, project, division or company goal performance
will be reviewed at least twice each performance year.
Year-end results should be available and evaluated in January of the
following year. Following approval of the Compensation Committee and Board
at the January meeting, bonuses will be payable to participants.
Form of Payment
All awards will be paid in cash, except that a participant in the Stock
Deferral Plan may elect to defer up to 50% of their award into that plan.
Deferral elections must meet the guidelines and timing of the Stock Deferral
Plan to be effective. Appropriate taxes for the entire award amount will be
withheld from the portion of the award being paid in cash.
A participant may elect by writing to the Compensation Committee prior to
the end of the fiscal year to have all or a portion of the following year's
incentive award deferred and paid in no more than five annual installments
beginning either with the date of termination or retirement, or in a lump
sum within six months after termination of employment or retirement. In
addition, with the consent of the Compensation Committee, the participant
may, at the time of making such election, designate some other date for the
commencement of such deferred payment. Further, the participant may submit a
request to change the original deferral period. The request must be
submitted in writing to the Compensation Committee who will take into
consideration the particular facts and circumstances in its final
determination.
-4-
An amount which is deferred shall be credited with compounded interest equal
to the prime rate applied on a quarterly basis.
E. Integration with Existing Programs
Base salaries will be managed with range bands at the appropriate blend of
general and industry average for comparable positions, with total
compensation objectives to be managed at a level appropriate with the
performance of the company, as determined by the Compensation Committee.
Salaries will be monitored each year and increases granted based on merit
and range band. Bonus targets will be set as a percentage of base salary. A
change, other than the annual salary review, in the compensation objective
will customarily occur during the year only through promotion to various
levels, at which time the base salary and bonus target are also likely to
change.
Promotion of an employee during the year or reassignment to responsibilities
in which new performance objectives apply will result in proration of the
existing performance objectives and bonus target and assignment of new
performance objectives as the Compensation Committee shall determine.
Promotion into the Plan would involve a promotional increase, but
eligibility for bonus would be delayed unless the participant is able to
produce positive results in the remaining time, as determined by the
Compensation Committee.
If a participant voluntarily terminates or is terminated for cause prior to
the end of the performance period, then no award shall be granted. In the
event a participant shall die, become disabled, retire or is terminated
without cause before the end of the performance period, then the
Compensation Committee will authorize payment of an award to the
participant, or beneficiary, in such amount as the Committee deems
appropriate.
F. Responsibility
Acceptance and success of this Plan will depend on documented, realistic
goals that are fair, understandable and measurable. Considerable management
focus and involvement will be required for goals to be established,
communicated and monitored.
The Human Resources Department will be responsible for the administration of
the system for the company. This will include:
1) monitoring market salary and total compensation levels,
2) recommending structural changes in base salary and compensation
objective adjustments,
-5-
3) reviewing eligibility and performance targets,
4) monitoring performance targets through the Accounting Department,
5) communicating progress reports to participants, and,
6) progress and exception reporting to Compensation Committee.
The 2001 Nicor Incentive Compensation Plan and changes to its performance
targets and measurement criteria will be reviewed and approved by the
Compensation Committee.
In establishing the actual bonus awards to be made, the Compensation
Committee may take into account all of the facts and circumstances which
exist during the year and may make appropriate upward or downward revisions
in performance criteria, add or delete objectives, or change the relative
percentages assigned to the various performance objectives.
G. Amendment and Termination
The Board of Directors may amend or terminate the Plan at any time without
the consent of the participants. No such amendment or termination shall
negatively impact any participant's amount which accrued under the Plan
prior to the calendar year in which the amendment is made.
Summary
The primary focus of this Plan is to link employee and company performance
and performance bonus through an incentive plan. It provides the necessary
emphasis on accountability for actions and decisions and enables people to
gain personally through significant efforts which contribute to the
company's present and future success.
Nicor Human Resources
March 2001